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Wipro’s mPower acquisition: Our view - Views on News from Equitymaster
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Wipro’s mPower acquisition: Our view
Dec 23, 2005

In its second acquisition in the past week, Wipro Technologies (Wipro) has acquired mPower Inc, a US-based company with an offshore Chennai-based development centre, for a total cash consideration of US$ 28 m. About mPower
mPower is a niche company, focussed on the payments space of the financial services industry. The company has annual revenues of US$ 18 m and an annualised EBIT of US$ 4.6 m. These margins, at around 25%, are in line with those of Wipro. Wipro has also entered into a strategic agreement with MasterCard International through its acquisition of a 100% stake in MPACT, a joint venture between MasterCard and mPower. This venture is based in Chennai.

Through this acquisition, Wipro will acquire a 300-member strong team and domain expertise in the payments area. This will provide Wipro the opportunity to expand its addressable market in the Financial Services business. As a part of the agreement, Wipro will provide MasterCard and other clients in the payments area with services ranging from application development and maintenance (ADM), infrastructure services, package implementation, BPO and testing.

Therefore, this acquisition combines the domain strength of mPower in payments with Wipro’s expertise in financial services and its wide array of service offerings and global reach. The acquisition is in line with Wipro’s strategy to expand into areas where it does not have a presence and in which it can build a position of market dominance. The acquisition will be effective from December 1, 2005, as per the agreement.

As regards valuations, Wipro will pay US$ 28 m to acquire the company, which is around 1.56 times revenues and around 6.1 times EBIT. This revenue multiple is similar to what Wipro had paid in order to acquire NewLogic three days ago. Again, as we have mentioned in the past, the acquisition may not add that much to overall topline, but it will give Wipro an entry into a domain where it was not present in such a big way before and expands the addressable market size, apart from leveraging the strengths of the two companies of domain expertise, broad range of offerings and global reach.

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